When you Apply for a Personal Loan, always be mindful of the charges related to the Personal Loan, be it interest rate, processing fee, administrative charge or pre-payment, and pre-closure charge. Or, you may feel the additional financial and mental stress later on.

It is recommended to know about all the charges and fees associated with the loan, right from the beginning; so that there is no ambiguity left.

One such important clause that is often overlooked by the borrowers is about the Preclosure of the loan. Whenever you have some lump sum amount in hand, you can pay off the remaining loan immediately and save on some of the interest levied by the bank. Besides, it always improves your credit score by closing your loans on or before time. It improves your debt to income ratio and improves your creditworthiness.

So, let’s learn more about Preclosure cost and charges of Personal Loans in this article.

What is Preclosure?

Preclosure of a Personal Loan basically means to close the loan by repaying the outstanding loan principal and interest balance before the loan maturity date. Many people opt for preclosure when they have surplus cash in hand. They prepay loan to clear the debt and to get rid of interest quotient for the remaining loan tenure.

A borrower can request for preclosure by writing an application to the bank and do the needful by just paying off the remaining outstanding amount of the loan in a one go, and the debt account will be closed.

However, your lender would charge a pre-closure charge/ penalty for closing the account before time. The charge is primarily meant to compensate against the otherwise lost interest charge.

To further understand the various components of preclosure, let’s take an example of a popular multinational bank of India—ICICI Bank Ltd

Does ICICI Bank Levy Preclosure Charges on Personal Loans?

Yes, if you have taken up an ICICI Personal Loan and you want to pre-close it, you certainly need to pay the preclosure charge. Currently, it levies 5% of the total Outstanding of the Principal amount plus the applicable GST as a pre-closure charge on Personal Loans. The best part is the clause that allows you to pre-close the ICICI Personal Loan after paying just the 1st instalment.

Unlike other banks’ Personal Loans, you can close your ICICI Personal Loan from the second month itself. You can either make part payments of your ICICI Personal Loan or pay the entire outstanding amount in a lump sum and preclose your loan immediately.

Procedure for pre-closing ICICI Personal Loan

Step 1: Go to your ICICI Bank home branch from where the Personal Loan was issued to you or you could visit any nearest ICICI Asset Servicing Branch.

Step 2: Carry along documents like your ID proof, PAN Card, Loan papers, Bank statement showing the payment schedule and the date of the last EMI. All these papers need to be duly self-attested. Also, carry your cheque book as you will need to pay the outstanding amount via cheque or Demand Draft. You can choose to pay cash as well, but any amount above Rs. 50,000 would need to be paid via cheque or demand draft only. You would also need to submit a Loan closure request letter duly signed along with all these documents.

Step 3: The bank will then calculate the exact outstanding amount plus the pre-closure charges and tell you the amount to be paid

Step 4: Once the entire amount is paid to the bank, they will issue a receipt for the same and hand it over to you. You need to keep it safe till the time they don’t issue the NOC of the Loan.

The bank will take a few days post this to do the processing of this preclosure and will email you the Loan agreement and the NOC of the Loan. Thereafter your loan is declared as closed.

In case you cannot visit the bank

If for some reason, you are unable to visit the bank physically, you can send someone on your behalf with the above-mentioned papers and the request letter. In addition to the other documents, your representative needs to carry an authorization letter from you stating that you are authorizing her to complete the formalities on your behalf.

If you are opting for a Balance Transfer facility from some other bank for closing your ICICI Bank Personal Loan, then as well the same procedure will be followed. You will need to submit all these documents to the bank that you are applying for the Balance Transfer and they would do the needful.

In all, it is always advisable to manage your loans efficiently. You can, and you must prepay debt accounts whenever possible and lead a debt-free life.

To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 70+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.

Talk to our Loan Specialists toll-free at 18001034004 to know more about our products and offers.